SGI + Compaq (again!)

[James Helman]

For those outside the Bay area, here are excerpts from an article in
today's San Francisco Examiner.  Despite problems with varying
possessives, the Examiner did better than the New York Times on the
Japanese company, NKK, which owns some of Silicon Graphic's'es' stock.
The "brilliant fish" and "McDonalds" quotes are destined to go down in
history.

-jim


"Possibilities Unlimited"
By Paul Freiberger of the Examiner Staff

Jim Clark could not be more relaxed if he were floating on a tropical
sea gazing down at brilliant fish.  Yet he is caught up in one of the
biggest business deals of his life.

 . . .

Observers expect Compaq and Silicon Graphics to be part of a major
announcement the week of April 8 that establishes a new standard for
the design of desktop computers.  Other participants will be Microsoft
Corp., Digital Equipment Corp., Santa Cruz Operation Inc., Mips
Computer Systems Inc. and Italy's Olivetti electronics group,
according to several people familiar with the arrangement.

. . .

Silicon Graphics is a quieter company where the comraderie is obvious.
Engineers work long hours and jog together on their breaks.  Less than
2 percent of its engineering staff changes jobs each year.  All the
company's founders are still at the firm; some work on small teams
designing new products.

But there's a nagging issue Silicon Graphics hasn't solved: how to
increase its market substantially before competitors move in.

. . .

McCracken has kind words for the Houston company, and many find it
easy to read into his comment that, "Compaq was once thought to be a
follower.  But they've been able to show leadership qualities.  And
they have good distribution channels."

. . .

An equity investment wouldn't be unprecedented either.  In 1988
Control Data bought a 20 percent stake in Silicon Graphics, which the
company later bought back.  And last year, Japanese steel maker NKK
Corp. invested $35 million.

Wider Audience Needed

Industry experts agree that for its technology to achieve widespread
use, Silicon Graphics needs to sell to a wider audience.

. . .

The company is to 3-D graphics as McDonalds is to fast food.

. . .

How would a deal work?  Here's how experts see it: Compaq gets Silicon
Graphic's [sic] computer design expertise and access to its graphics
hardware and software.  Silicon Graphics gets Compaq's high-volume
parts, lower production costs and market access.

Some analysts fear that Silicon Graphics would give up too much. . To
obtain Compaq's market it will have to share some profits and possibly
see its products sold with a Compaq label.

"SGI would like to become the graphics standard in the PC market,"
says Robert Herwick, an analyst with Hambrect & Quist Inc., a San
Francisco investment bank.  "Conceding that market to Compaq would
compromise their potential."

But the cooperation of Microsoft, Mips and others in the consortium
could create a bigger market for all participants, making Silicon
Graphics an immediate mainstream player.

The highly competitive Clark is unlikely to give up a shot at finding a
new Comstock Lode.  A few years ago, startup companies Ardent Computer
Corp. and Stellar Computer Inc. tried to recruit him to help launch
new computer companies that would focus on top-of-the-line 3-D
graphics.

He saw them as interlopers on Silicon Graphic's [sic] turf.  Since
then, Clark's company has established and dominated this new market,
called project supercomputing.  Stellar and Ardent have struggled and
eventually finally merged into one company.

Silicon Graphics's [sic] approach is to continue to lower the cost of
its technology and to find more effective ways to market it.  Hence
the Compaq deal.

Adds Clark: "Getting our products distributed in a volume way is
important to us."

Clark relishes his role as pioneer and leader of the 3-D worlds and he
wants to keep his products ahead of the others.  Though he has found
time to enjoy some of the rewards of success, including a two-week
cooking class in Italy, he is still excited by technology.

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